Multiple Choice
Identify the choice
that best completes the statement or answers the question.
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1.
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The company Jason works for matches his 401(k)
contribution up to 5%. Jason takes advantage of this by maximizing his contribution amount to
$200 per month. At the end of one year, how much money will be in his account?
a. | $1,200 | c. | $4,800 | b. | $2,400 | d. | $5,000 |
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2.
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The primary difference between the Roth IRA and a
traditional IRA is:
a. | The IRA allows a contribution amount of $5,500 for
non-income producing spouses; the Roth IRA doesn’t. | c. | Contributions to your Roth are pre-tax; contributions to a traditional IRA are
after-tax. | b. | The Roth IRA grows
tax free; the traditional IRA doesn’t. | d. | A traditional IRA
grows tax free; the Roth IRA doesn’t. |
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3.
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Under which condition are you not able to make a
tax-free withdrawal from your Roth IRA?
a. | Over 59 and a one half years old | c. | Career change and temporary drop of income | b. | First-time home purchase up to $10,000 | d. | Death or
disability |
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4.
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What is the best option for your retirement plan
when you leave a company?
a. | Have the money sent to you and deposit it into a new IRA
within 60 days. | c. | Leave the plan where it is so it can
continue to accrue interest. | b. | Do a direct
tranfer into an IRA. | d. | Cash out the plan and invest in good mutual
funds. |
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5.
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If you have $3,000 invested in a Roth IRA, what is
true about your contribution?
a. | You have already paid taxes on the money, so it will
grow tax free. | c. | You have maxed out your
contribution. | b. | You will pay taxes
only on the growth of $3,000. | d. | Both a and b |
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6.
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Which of the following is a good way to save for
college?
a. | ESA | c. | Pre-paid college tuition | b. | Life
insurance | d. | Savings bonds |
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7.
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Using the Rule of 72, how long it will take your
money to double at 12% interest?
a. | 6 years | c. | 8
years | b. | 7.2 years | d. | 9
years |
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8.
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When seeking a financial counselor to help you with
your investments, always go with:
a. | A close family member or friend because you will be
helping each other out. | c. | A financial counselor with the heart
of a teacher who explains everything to you. | b. | A financial
counselor who is sophisticated and uses all of the right vocabulary. | d. | A financial
counselor who has at least five years experience. |
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9.
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What does Baby Step 5 say about saving for your
children’s college?
a. | Use tax-favored plans | c. | Use a Certificate of Deposit | b. | Use pre-paid college tuition | d. | Use insurance or
savings bonds |
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10.
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If your company does not provide any type of 401(k)
match, what is the best investment option?
a. | Contribute nothing into your 401(k), if there is no
match. | c. | Fully fund the 401(k) up to 15% of your
income. | b. | Invest the maximum amount allowed in a Roth IRA, and
then go back and fund the 401(k) to complete 15% of your income. | d. | Find another job
with a company that offers a retirement plan. |
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11.
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Which is an advantage of a Roth IRA?
a. | Offers more choices | c. | Higher bracket at retirement | b. | Offers more flexibility | d. | All of the
above |
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12.
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Caleb’s company offers a 5% match on a
401(k). If he makes $40,000 annually, what should his investment plan look like?
a. | $6,000 total investment: $2,000 in 401(k) and
$4,000 in a Roth IRA | c. | $6,000 total investment: $6,000
in a Roth IRA | b. | $6,000 total
investment: $6,000 in 401(k) | d. | $4,000 total investment: $2,000 in 401(k) and
$2,000 in a Roth IRA |
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13.
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Therese and Kyle want to open a Roth IRA for their
10-year old son. What is the current contribution allowed?
a. | $5,000 starting in 2013 | c. | $0: not eligible if you do not have an earned
income | b. | $2,750: a child under 18 can do up to one half the
maximum contribution limit | d. | $2500 per year starting in
2013 |
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14.
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If you borrow against your retirement plan, under
which conditions must you pay it back?
a. | If you leave the company
voluntarily | c. | You die | b. | If you are forced to leave the company | d. | All of the
above |
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Matching
Select the best answer from
the vocabulary word bank.
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a. | Baby Step 4 | f. | 401(k) | b. | Baby Step
5 | g. | 403(b) | c. | UTMA | h. | 457 | d. | Custodian | i. | Educational Savings Account | e. | SEPP | j. | Rollover |
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15.
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A retirement plan for self-employed
people
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16.
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A deferred compensation plan
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17.
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Typical retirement plan found in most
companies
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18.
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Retirement plan found in non-profit groups
(schools, hospitals)
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19.
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Save for college by first using this type of
account
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20.
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Used after you max out the ESA
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21.
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Movement of tax-deferred retirement money from one
plan to another
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22.
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Invest 15% of income for retirement
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23.
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Manager of a child’s UTMA account until he
or she reaches age 21
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24.
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College funding
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Short Answer
Use what you have learned
to answer the following questions.
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25.
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What are the benefits of a Roth
IRA?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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26.
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What interest rate will double your money in five
years?
_____________________________________________________________________
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27.
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What are two reasons not to rely on Social
Security?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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28.
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What are three nevers of college
saving?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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29.
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Mike has been maxing out his 401(k) for a few
years, but his company provides no matching funds. Should he stop funding the 401(k) and max
out a Roth IRA, or keep contributing the max to his
401(k)?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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30.
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Why should you wait until after your emergency fund
is in place before you invest in retirement
funds?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Ranking
Order the following investment
steps according to priority (first to last) using ranking numbers 1-4.
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31.
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_____________________ Build
Wealth
_____________________ Fully funded emergency
fund
_____________________ ESA
_____________________ 15% income into Roth
IRAs and pre-tax retirement
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